Dr. Paul Miller CPA

GLG News by Dr. Paul Miller CPA, Professor

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Upside down it is indeed

September 6, 2006

Analysis of:Upside Down View | www.auditintegrity.com

The author, Kaplan, is correct on both counts.  First, this manager, Dan Warmenhoven, appears to be living in a world where ethical standards are different from the one the rest of us live in.  Second, there are substantial financial, legal, and tax consequences that are yet to appear.  The article is an overall indictment of not only Warmenhoven but all in the management corps whose idea of thinking twice about a scheme means trying to figure out how to get more, not whether it is fair and honest.

With all due respect, Mr. Pugh misses some points

September 6, 2006

Analysis of:New Leasing Rules Could Add Assets | www.cfo.com

Mr. George Pugh seems to have missed some key points in his review of this article.  The problems with lease accounting are not theoretical but very real.  Further, the justification for reform is compelling – the financial statements of both lessors and lessees are incomplete and misleading, and have been made that way by intentional design.  With all due respect, I’m afraid that Mr. Pugh and others who diminish the need for reform are whistling in the dark.

There is indeed more than meets the eye on leases

August 17, 2006

Analysis of:New Leasing Rules Could Add Assets | www.cfo.com

While it’s tempting to minimize the impact of change, bringing operating leases onto the balance sheet will have many effects.  In particular, the income statement will look different, and the cash flow statement will report higher operating cash inflows and higher financing cash outflows.  In addition, as the article mentions, I expect major behavioral changes.  Will stock prices change?  Frankly, no one knows for sure.

Commissioner Atkins Misses the Boat on Spring-Loaded Options

July 14, 2006

Analysis of:Remarks by SEC Commissioner Paul S. Atkins Before the International Corporate Governance Network 11th Annual Conference, July 6, 2006 | www.sec.gov

The press has reported on Commissioner Atkins’s July 6 speech in Washington by focusing on two astounding claims that granting spring-loaded options is neither insider trading nor harmful to investors.  In contrast, this analysis shows how mistaken Atkins is by describing that spring-loading is designed specifically to produce misleading financial statements.  If so, it would be appropriate to bring charges against management that they also violated Rule 10(b) on deceptive reporting as well as committing insider trading.  And, it would also be appropriate to doubt other claims made by Atkins.

The commissioner’s conclusions don’t pass the smell test

July 13, 2006

Analysis of:'Spring-loading' not insider trading | www.chron.com

This article is perplexing.  First, Mr. Atkins’s seems to be well out of order by commenting so definitively on an issue that is bound to be addressed by the commission and eventually the courts; therefore, his comments appear to be prejudicial and unwise. Second, his quoted conclusion that spring-loading is good for shareholders strikes me (and others) as a disingenuous effort to minimize the foul odor of unethical behavior.  Third, he ignores the fact that spring-loading is designed to minimize the reported compensation expense from the options.

Revenue recognition: things are seldom what they appear to be

July 13, 2006

Analysis of:Red Hat Stock Hammered on Accounting Change | www.eweek.com

Revenue recognition is an arcane art that has been made to appear scientific with bright lines between what’s right or wrong, or what leads to better or worse income measurement.  Users must be cautious in relying on reported revenue numbers because of the arbitrariness of the rules that define when and how much revenue has been “earned” in any time period.   

Pension accounting: it’s political, not technical

July 11, 2006

Analysis of:Business Objects to FASB’s Plan for Measuring Future Pension Costs | www.accountingweb.com

Progress in accounting standard-setting is slow and hard-fought, often with little or no progress at all.  

The time-honored but dysfunctional approach to policy making and implementation addresses the needs of those who supply information instead of the needs of those who use it.

In the case of pension accounting, it seems clear that the PBO measure should be reported because users demand it.  Therefore, managers may be shortsighted in arguing for the ABO because it will make their balance sheets look better.

FASB on Pensions - there's more than meets the eye

April 7, 2006

Analysis of:FASB to Move Pension Accounting From Footnotes to Balance Sheets | online.wsj.com

The effect of implementing FASB's proposed new standard for defined benefit pensions and OPEB plans will go far beyond the mere movement of information out of the footnotes into the financial statements. Because managers would have to provide more explicit information about their companies situations, they will be held more accountable. This accountability will motivate them to change their policies and take steps to bring the virtually uncontrolled situation under control. In effect, the new standard will not just change the financial statements but greatly alter the employers' real economic condition. It would also be superficial to think that leaving the expense calculation unchanged will have no effect on how pensions are managed. Instead, it is clear that the increased accessibility to information about the plan assets and liabilities will stimulate more analysts to probe the calculation of the annual charges. Once they do, they will uncover its flaws and take steps to produce their own more useful measures. Again, the ultimate consequence will be that managers will be motivated to exert more control over the real expense in order to improve the apparent amount.

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